Pink sheets become home to stock market's 'Dead Dogs. (A Shock to the System--Banking & Finance Special Report).

In the past year, Franklin Telecommunications Corp. has fired one auditor, seen another quit, and been kicked off both the American Stock Exchange and the over-the-counter bulletin board.

Westlake Village-based Franklin can't afford to hire a new auditor, and without audited financial statements, Franklin's already dim hopes of being acquired--and saved from extinction--are in danger of being dashed.

"It's just a long, sad country-western song at this point, and then the dog died," said Franklin's chairman, Frank Peters, who has been working with no salary for two years.

Three weeks ago, Franklin landed on the pink sheets, the last stop for a growing number of publicly held companies that, for one reason or another, can no longer meet the listing requirements of the other stock exchanges.

A pink sheet designation typically involves stocks trading under a dollar and not keeping current on Securities and Exchange Commission filings. Unlike a stock exchange, companies quoted on the pink sheets system are not required to meet minimum standards.

In the past year of market uncertainty, the pink sheets have grown by 10 percent, to about 3,300 listings, said Cromwell Coulson, chief executive of Pink Sheets LLC in New York. Mostly it's been due to economic stress, and "companies falling off the bulletin board," he said.

Many that wind up there have already declared bankruptcy or run afoul of Securities and Exchange Commission reporting requirements, as Franklin did. Some companies sin ply don't have enough shareholders to qualil for the other stock markets, Coulson said.

Last week, Peters was trying to adjust to the fact that his 20-year-old company, which once generated annual revenues over $50 million, is now trading on the pink sheets, alongside bankrupt firms such as Enron Corp., WorldCom Inc. and Global Crossing Ltd.

Unable to find a quote, Peters cheered u for a moment when he was told the stock last traded at 1.5 cents.

"It hasn't been that high in awhile," he said.

Franklin rose and fell with the telecommunications craze. The company, whose equipment historically was used by banks to send data over their networks at high speeds, developed a device that allowed voice conversations to be converted into data packets and sent over the Internet.

Using this technology, called voice-over-IP, a customer with offices in New York and Jakarta could purchase two of the phone devices and, for the price of two local calls, get a long. distance hook-up.

Voice-over-IP gained a healthy buzz in the late 1990s, but then the long distance companies fought back, lowering their prices for traditional phone service. Larger competitors entered the market. Now there's a thriving voice-over-IP industry, but Franklin has been passed by.

Franklin's strategy, Peters said, was to continue raising money to develop its technology and eventually be purchased by a larger telecom company.

But by then, the telecom world was already imploding. Potential buyers such as WorldCom, Lucent Technologies and Nortel Networks stopped acquiring smaller companies.

Franklin began to retrench, cutting its workforce from a peak of close to 100 in the early 1990s, and then, to save cash, its last 20 or 30 worked for stock only. For the last two years, Franklin hasn't had any employees or operations. Peters and his son, Michael, have kept the company in "stasis," selling replacement products from remaining inventory while they wait for the market to come back.

But that plan is also facing a test, thanks to some of the new rules being imposed on publicly held companies.

This summer, when it came time to file Franklin's annual report, the company provided all its financial documentation to its auditors, but in the wrong format. The accounting firm corrected the problem, then realized that since it had assisted in the preparation of Franklin's financial statements, it was barred under the new Sarbanes-Oxley Act from completing the audit.

"The Sarbanes-Oxley Act just put us out of business. It scared our auditors to the point they quit the day we were going to file our 10K and the reason we're on the pink sheets is that," Peters said. He couldn't afford to hire another auditor.

Peters believes the new regulations were enacted without regard to how they will affect smaller companies with revenues under $10 million.

Despite its downward spiral, Peters contends that Franklin's intellectual property assets still hold significant value. "When the wave recedes what is left here is, I think, millions of dollars worth of intellectual property," he said.

RELATED ARTICLE: Low-Bent Stocks

Among the terms involving cheap stocks not traded by the major exchanges.

* Over-the-Counter Bulletin Board: An electronic trading service offered by Nasdaq. Traditionally home to many small and micro cap companies, it is considered high risk.

* BBX: Takes the place of the OTC Bulletin Board beginning next year. Will have no minimum share price, income or asset requirements.

* Delisted: When the stock of a company is removed from a stock exchange. Reasons for delisting include violating regulations or failure to meet financial specifications set out by the exchange.

* Pink Sheets: A daily publication compiled by Pink Sheets LLC (formerly National Quotation Bureau) containing price quotations for over-the-counter stocks. Unlike a stock exchange, companies quoted on the pink sheets system are not required to meet minimum standards.